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Zero

A zero is a type of share or bond. Its key feature is that it pays no annual dividend, or coupon.

A zero is a type of share or bond. Its key feature is that it pays no annual dividend, or coupon. Instead, the security is issued at a discount to its face value (also known as its par value), but is redeemed (bought back by the issuer) at face or par value.

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The result is the holder should enjoy a capital gain over the life of the security. This type of instrument is often issued by split-capital investment trusts some of the shares issued are 'zeros' and the rest 'ordinary'.

Zeros are tax efficient gains are typically taxed at the capital-gains tax rate of 18% and so can be useful to an investor looking to pay a big future bill such as school fees. But there are risks. If, say, the issuer goes bust, the holder may get nothing back.

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